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The topology of the federal funds market

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  • Bech, Morten L.
  • Atalay, Enghin

Abstract

We explore the network topology of the federal funds market. This market is important for distributing liquidity throughout the financial system and for the implementation of monetary policy. The recent turmoil in global financial markets underscores its importance. We find that the network is sparse, exhibits the small world phenomenon and is disassortative. Reciprocity tracks the federal funds rate and centrality measures are useful predictors of the interest rate of a loan. JEL Classification: E4, E58, E59, G1

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0986.

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Date of creation: Dec 2008
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Handle: RePEc:ecb:ecbwps:20080986

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Keywords: interbank; money market; network; topology;

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  1. Hamilton, James D, 1996. "The Daily Market for Federal Funds," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 26-56, February.
  2. Portes, Richard & Rey, Hélène, 1999. "The Determinants of Cross-Border Equity Flows," CEPR Discussion Papers 2225, C.E.P.R. Discussion Papers.
  3. Ho, Thomas S Y & Saunders, Anthony, 1985. " A Micro Model of the Federal Funds Market," Journal of Finance, American Finance Association, vol. 40(3), pages 977-88, July.
  4. Leonardo Bartolini & Spence Hilton & James McAndrews, 2008. "Settlement delays in the money market," Staff Reports 319, Federal Reserve Bank of New York.
  5. Allen, Linda & Saunders, Anthony, 1986. "The large-small bank dichotomy in the federal funds market," Journal of Banking & Finance, Elsevier, vol. 10(2), pages 219-230, June.
  6. Rosati, Simonetta & Secola, Stefania, 2005. "Explaining cross-border large-value payment flows: evidence from TARGET and EURO 1 data," Working Paper Series 0443, European Central Bank.
  7. Andrew F. Daughety & Jennifer F. Reinganum, 2008. "Settlement," Vanderbilt University Department of Economics Working Papers 0808, Vanderbilt University Department of Economics.
  8. Selva Demiralp & Brian Preslopsky & William Whitesell, 2004. "Overnight interbank loan markets," Finance and Economics Discussion Series 2004-29, Board of Governors of the Federal Reserve System (U.S.).
  9. Leonardo Bartolini & Svenja Gudell & Spence Hilton & Krista Schwarz, 2005. "Intraday trading in the overnight federal funds market," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 11(Nov).
  10. Allen, Linda & Peristiani, Stavros & Saunders, Anthony, 1989. "Bank Size, Collateral, and Net Purchase Behavior in the Federal Funds Market: Empirical Evidence," The Journal of Business, University of Chicago Press, vol. 62(4), pages 501-15, October.
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